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With Unemployment Benefits, It's the Invisible That Matters
With a vote on unemployment-benefit renewal set to come before Congress yet again, a great deal of discussion about its impact is to be expected. If so, it should be hoped that this time around the less visible effects of jobless benefits can be considered.
By now the visible impact is well known. At its core, unemployment insurance pays individuals out of work to stay unemployed. Though the benefits aren't substantial, the funds paid out are a cushion of sorts that make finding the work necessary to feed oneself less of a near-term necessity.
Not only does jobless compensation make securing work less of a pressing issue, it also raises the cost of luring workers from the sidelines. Indeed, in deciding whether to take on new employment, the unemployed must consider the wage offered through the prism of what will be lost thanks to the cessation of government paychecks.
Looking at the above, jobless benefits in a very real sense artificially prop up wage demands, and the results are predictable. Much as a typical convenience store would suffer slow inventory turnover if it failed to adjust prices to market-clearing demand, at present there's a great of human inventory that has yet to be cleared.
Unemployment benefits with no endpoint make the clearing of employment inventory a difficult concept because they don't allow wage demands to adjust to present realities. If the alleged benefits were voted down, there would be an immediate wage-demand adjustment on the part of most unemployed on the way to them finding work at wages that reflect actual demand for labor in the marketplace.
All of which brings us to the invisible aspects of unemployment benefits offered by states and the federal government.
Economist Alec Phillips of Goldman Sachs remarkably argues that benefit cessation would shave a half a percentage point of growth from the admittedly unreliable GDP calculation. The thinking there is that without government checks, the unemployed would consume less on the way to lower GDP. That's what's visible.
But what's not visible is how many sidelined workers would in fact be employed minus benefits that create incentives for them not to be. Absent benefits that are delaying wage-demand adjustments, it's a fair bet that many of the unemployed would be working now, and their work efforts would drive up real economic growth on the way to consumption that would increase GDP even more than handouts presently do.
More important to this discussion, however, are the positive behavioral implications that would arguably result from governments not offering up unemployment insurance to begin with. Unseen here is how much harder the average American would work if it were apparent that there would be no check waiting once the ax falls.
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For that alone, it's easy to argue that working Americans would be far more productive if aware that their joblessness would not be met with a check from the state, and their productivity would attract greater investment on the way to more job security. Productivity is an investment magnet that perpetuates work.
Secondly, if unemployment insurance were abolished altogether, this would profoundly impact the willingness of the average American to save for a rainy day. Simply put, individual savings would rise in concert with the abolishment of jobless benefits. The positive results of such a development should be very apparent.
Indeed, company formation and the jobs that result are solely a function of delayed consumption on the part of individuals. Increased savings would increase the stock of capital necessary on the way to plentiful jobs. A higher savings rate would create a more vibrant employment cushion amid corporate downsizings that would make the very notion of jobless benefits less of a factor in our economic life.
Basically the increased savings would ensure constant new company and job opportunities that would replace the businesses and jobs lost. Even better, thanks to the abolishment of the benefits, companies on the way up would no longer be forced to bid for labor made artificially expensive by benefits paid for at least in part through taxes foisted on job-creating businesses.
Of course if individuals were drawing down their own savings while unemployed, the pain of raiding their own next egg would surely increase the sting of joblessness, and concentrate the minds of the unemployed on the way to quickly finding work. As the late Milton Friedman used to say, we're a lot more careful with our own money than we are with that of others.
Through the creation of state-subsidized unemployment insurance no one pays for their own unemployment benefits, but everyone pays for everyone else's benefits. In that case, is it any wonder that these supposed benefits continue to be extended?
Ultimately the only cure for recession and joblessness is production itself. What's visible in this case is the unemployed continuing to spend the money of others while unemployed. What's not visible is all the wealth creation lost thanks to the employed being depressed so that the unemployed can be stimulated away from productive work.
So while the visible negatives that reveal themselves through unemployment insurance are well noted at this point, it's essential to consider the unseen, or invisible. Unemployment benefits foster an environment of lower productivity and greater prodigality that necessarily make downturns more painful for the capital stock being depleted. If this is to be fixed, it's important to remember the invisible, as in how would Americans behave if they knew the government wouldn't be there for them in times of distress?
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About John Tamny:
Mr. Tamny is a senior economic advisor to Toreador Research & Trading, columnist for Forbes and editor of RealClearMarkets.com. Mr. Tamny frequently writes about the securities markets, along with tax, trade and monetary policy issues that impact those markets for a variety of publications including the Wall Street Journal, National Review and the Washington Times. He’s also a frequent guest on CNBC’s Kudlow & Co. along with the Fox Business Channe
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The irony of an economist saying such things, which next to an astrologer has about the biggest pseudo science behind their profession can't be lost on anyone can it.
For that alone, it's easy to argue that working Americans would be far more productive if aware that their joblessness would not be met with a check from the state, and their productivity would attract greater investment on the way to more job security. Productivity is an investment magnet that perpetuates work.
I hope that goes for all government employees as well.
For that alone, it's easy to argue that working Americans would be far more productive if aware that their joblessness would not be met with a check from the state
Working while you're scared shitless. Yeah, how about that idea when you get on your next flight and the pilot is already on food stamps? A scared shitless pilot and crew taking you to 40,000 feet for a 600 Mph spin in a plane maintained by scared shitless Mechanics.
I'm sure productivity would just soar if people were just more scared. I'm sure they would go right out and buy shit too. Think of the new consumer economy. think of Xanax sales!. Then everything would be just peachy.
If all the job openings were filled it would still leave 5 people unemployed for each opening, that's a sure receipe to get people to start a business. Cut off all sources of revenue, credit, and repo all their assets on bullshit paper.
Another article where it's patently obvious that the author goes through extreme pain when forced to think. So why do it? He is scared shitless. If he's scared shitless, that's the kind of bullshit you get.
Government employees are all appointed political hacks who either work on campaigns or fare the kids of wealthy people whose parents need to park them somewhere for a while, while they grow up and stop getting drunk and crashing the sport cars.
D.C is populated by failed elite children who can't be trusted with Daddy's business and political hacks who will suck a dick for a quarter.
We have no professional class in the government since politicians who will suck dick for a nickel are in charge of the hiring.
What a load of crap! The US worker is among most productive workers in the world. Companies have been shaving jobs for as long as I can remember and now we work the most hours and have less vacations and benefits than the other first world countries. Most people I know, myself included, are doing the equivalant of 2-3 people's duties at their jobs. We are sooooo getting screwed without lube. Unbelievable.
http://www.msnbc.msn.com/id/20572828/ns/business-world_business/
http://www.bloggingstocks.com/2009/12/04/recession-or-expansion-u-s-productivity-continues-to-soar/
http://www.foxbusiness.com/markets/2010/11/04/productivity-climbs-quarter/
What is this supposed to mean? The wage demands are determined by the general environment settings for most of them.
No matter how many of them are unemployed, working people still need to stuff to live, whose costs are tied to the general environment.
Incidentally, it leads me to something, just connecting.
The western world has created a demand for a class of non residential workers, guys who should perform a job to move back home when it is over.
China has started to meet that demand by sending rotating crews in the West to perform a task. The Chinese play a dangerous game as in the West, the creation of this demand is denied through mechanics like unemployment prevents wages from being adjusted.
What it means is simple.
40 hour work week minimum wage at McJob: 7.25 hour
= 290 Gross. Take away about 45% for state, fed and other withholding etc and you are left with about $155 or so give or take.
My last unemployment decades ago paid me 320 per week maximum because my income up until laid off the last 12 months was at the top of thier charts.
I'll take the 320 a week for two years instead of enduring abuse from the public at the McJob dealing with crappy food cooked by a rebellious work force behind my back while 4 manager associates whip everyone into submission with threats of cutting hours or firings.
I much rather go back to trucking and pull down whatever hundreds to thousands of dollars each week/month running team with wife and unemployment be damned.
excellent summary of the new slave economy
Is this article a fucking joke or something?
We wouldn't have such a jobless problem if Congress wouldn't have provided incentives for companies to ship jobs overseas. If banks were in a lending mood perhaps more people would take on the risks of starting up new businesses. And companies are not investing in new plants and equipment in order to increase employment.
WTF dude? Who the hell are you? Your article is complete rubbish.
the article is a fucking joke. It appeals to those here who have been fully brainwashed by all the lunatic political rhetoric along the lines of "those lazy americans sitting around enjoying unemployment". There are people who are so stupid and sociopathic to actually believe the crap... that is what is most disturbing to a sane person.
But... trillions to bankers that's okay ... its the $30 billion to the unemployed that continues to drag things down.
People are NOT going to take risks when they have an administration that is on the rag 24/7.
Why would anyone with a brain commit to borrowing(credit worthy), to start or increase anything with this pathetic group in control.
People will not take RISK, when they do not know if six months later, they will have five more new regs, and taxes thrown on them.
The inmates are in control of the asylum.
Tea Party rubbish that government is the cause for all the world's problems.
Government isn't the problem. Letting Goldman Sachs run your government is the problem. Government ran things perfectly fine from 1945-1981 when that banker friendly ass clown Reagan started the Teleprompter fed banking propaganda politician issue, and everyone since him has been nothing but a teleprompter reading idiot, with exception of George the first who was just an out and out corrupt criminal.
Jake, you will enjoy this if you haven't already seen it.
http://www.rollingstone.com/politics/news/12697/64796
Taibbi’s Takedown of ‘Vampire Squid’ Goldman Sachs From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression — and they're about to do it againpitchfork time....
Thanks for all that information. Fact is there aren't that many jobs out there right now, and Unemployment and Food Stamps are the modern equivalent of the Bread Line.
The reason you see the fund outflows you do is 50% people dipping into their 401(k) to feed the family during the economist and banker created period of hell.
I'm fine with ending the UE and Foodstamps program. I'm also fine with a charity being set up to give the unemployed fire arms and ammo.
I hope you live in a gated community Jake.
No need for a charity to give the unemployed firearms and ammo if we end welfare to corporations.
http://www.cato.org/pub_display.php?pub_id=8230
(Note the date on the publication. Prior to the 2008 meltdown...and the cost was already staggering.)
While they hand ouy w/the right, watch the left.
These Bastards are evil.Those STILL fortunate to have jobs, desperately trying to keep them, keep getting nailed.
Now they are talking seriously about taking away tax breaks for employers who provide health insurance,as they just forced them to make their employees pay 25% more for less coverage than on 2010.
I don't know about most of you guys, but unless I am mistaken the pre-existing conditions clause doesn't take effect for a couple of years.
I do expect employers to either DROP the coverage alotogether, or make the employee pay full taxes on the benefits.
This for 50yrs has been a PART of the incentive for employees to work for a company.Benifits,if done away with, or employees are forced to pay all of the premiums, will cause hundreds of thousands of more mortgage walk aways,defaults,and turn them into renters.
Not many can afford a $15k hit to their already reduced pay, and pay taxes on it to boot.
We need a lot of new rope and massive hangings.
These SOB's brought the house down, and whats left of the workforce cannot stand much more.
This is the worst possible time they could hit whats left with more taxes, and less income, or no health care at all.
You cannot tax someone with no income.
Oh are elite are about as dumb as the elite in the EU who think they can loan Ireland more money when Ireland is broke and somehow things will work out instead of taking a damn haircut on their stupid investment.
Here is how it works, you find something that is functioning reasonably well, Ireland for example.
The elite take a whole bunch of money and loan it into the economy and disrupt it functioning well bidding up the prices of all the assets on leverage. The economy hits a normal hiccup like an inventory recession and the entire thing crashes. Since the elites put a bubble in the asset classes with cheap money they are now scrambling for a way to be paid back or suddenly not be elite anymore (which should happen in the natural order of things). Instead what they do is try to push as much shit down on the lowest end of the ladder to pay back their bad bets. Rinse, wash, and repeat.
The one thing recently I have to respect, is Wikileaks. The limited wires that have come forward have shown how absolutely stupid and petty our elites are around the world.
Who would have known that the reason the Chinese shut down google is because their dear leader has an ego that when he googled himself, he saw things he didn't like. Yet we insist on continuing to do business with these creeps.
Perhaps a little late to be arguing against the warfare welfare mixed monopoly economy
Guess we will just have to round everyone out of work up into FEMA camps
0 did his part freezing Fed salaries two years
<sarcasm off>
it's a fair bet that many of the unemployed would be working now
At what jobs? Minimum wage grocery jobs to cashier for the food stamp economy. FUKK you.
This economic engineering plan took industry offshore to negate the labor cost and increase corporate profit. There's no free market with fiat money and a rigged stock market.
Basically, the globalist fukks stole American technology by paying for laws designed to enrich some at the expense of American society.
And it worked and it's working. Welcome to the new economy where you can get a minimum pay job part time if you're "lucky". Won't that just be better for everybody.
Stream of U.S. jobs flows overseas
http://www.lansingstatejournal.com/article/20101129/NEWS03/11290318/1004/NEWS03/Stream-of-U.S.-jobs-flows-overseas
"One who does not work does not eat"
J. Stalin
I like it. This is the real socialism.
American people have lived well over their means for the last 40 years. It could not last forever. The time is up for America and EU.
America got out the WWII like a bandit. Russia and Brits did most of fighting.
As of now, there is nobody to do fighting for America. The American post-WWII war record is very dismal: a stalemate in Korea, a defeat in Vietnam, and no war-end in sight in Iraq and Afghanistan. Yes, America won the Cold war but only because the USSR just imploded under a burden of runaway corruption.
you must be one of those UAW (dubyan) types that think your labor is worth $85,000 when your skills are no better than a line cook at McD's. FOK U2.
"At what jobs?"
At the jobs you think you're too good to do.
And you are correct, they will be minimum paid jobs and you can apply for food stamps and welfare if needed.
At the jobs you think you're too good to do.
And you are correct, they will be minimum paid jobs and you can apply for food stamps and welfare if needed.
While the gubmint employees are making 3x's + full time+ benefits+doing jack shit and pompous asses like yourself are explaing how slavery works - and how I think I'm too good for it? fukk you and yours
I'm just the messanger. We all come to ZeroHedge to see how the sh!ts going down. Don't be sour at me and mine, I could very well be in your shoes at any moment.
I had to down grade already. I can b!tch about it all day but I had to find something and I did.
Just because I think I'm entitled to a better job with bennies and perks doesn't mean the world is going to give it to me.
I have 2 jobs, thanks.
There are five unemployed people for every open job out there.
Given that, the question remains "At What Jobs?"
This article goes under the assumption that if we simply cut people off then everyone would get jobs and the world would continue to turn. No problem.
That's not reality, and I'm sick to dealing with ideology over reality. That's how we got into this mess in the first place.
Are you sticking to ideology or reality? Unclear.
Well its obvious which one you are sticking with.
Well its obvious which one you are sticking with.
How so. I'm asking a legitimate question.